NZX prepares to launch new markets

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The NZX is surveying advisers, brokers and fund managers to help define a new market it could launch to replace its NZAX alternative exchange.

Chief executive Tim Bennett said the delayed Financial Markets Conduct Bill will allow NZX to launch new kinds of capital markets that could sit between the main board and the privately run Unlisted market.

"The Financial Markets Conduct Bill provides the ability to build different market structures for different types of investors," he said.

The NZAX launched in late 2003, but has never lived up to expectations. Bennett said it launched at a time when there was a lot of interest in investing in smaller companies, but that interest waned quickly.

The main issue is that there is not enough differentiation between the NZAX and the main board, he said. Once the bill is passed there is the opportunity to create something "more fundamentally different" from the main board.

Bennett is keen to make listing easier for smaller, growth-oriented and ambitious companies needing expansion capital.

There are roles for different kinds of markets for companies with different requirements and investors with different levels of experience, he said.

Once the bill is passed, things might move quite quickly, Bennett said, because regulation is already being drafted in anticipation of the new law.

New Zealand is a small country and our capital markets are also small, he said, so a collaborative approach is needed when talking about a growth market.

David Wallace, managing director at Armillary Private Capital, which operates the Unlisted market, said the proposed law will allow the NZX to create markets similar to Unlisted.

"Of course, that creates a competitive position which is good for issuers," he said.

However, he questioned whether it would make more companies want to list.

Wallace said a new generation of young entrepreneurial companies is emerging, but that won't happen overnight.

As for investor demand, that depends on companies gaining momentum, he said, and on good communications.

It isn't just small high-growth companies Bennett is eyeing. He said markets the NZX could operate might include new facilities to allow New Zealand's many co-operatives to trade shares.

The NZX already operates such a market for Fonterra.

Another development that could play into the market changes is the legalisation of crowd funding, Bennett said.

Bennett said interest in markets for small cap stocks is rising globally. The cost of market technology is also falling, lowering barriers to entry.

Bennett is also eyeing new listings out of local government trading businesses, along the lines of Port of Tauranga, majority owned by the Bay of Plenty Regional Council.

Bennett said NZX's interest is in developing vibrant equity markets, but there is a long way to go to achieve a doubling or tripling of the market's size.

"There is potential to do that, but it requires New Zealanders to understand it's good for our economic development to have companies owned and managed by New Zealanders and operating more effectively because of listing."